Exemption for machinery components depends on knowledge at clearance; absence of suppression barred extended limitation.

Components of machinery cleared without claiming exemption under Notifications 175/86 and 1/93 were not outside the exemption merely because their use as original equipment was not known at clearance. Where the buyer did not initiate the prescribed Chapter X procedure, the manufacturer was justified in clearing the goods without exemption, and later use as original equipment did not affect the legality of that clearance. The record also showed disclosure of the nature of the goods and no established suppression of facts, so the extended limitation period could not be invoked. The demand was unsustainable on merits and limitation.

---

---

Issues: (i) Whether components of machinery cleared by the manufacturer without claiming exemption were outside the exemption under Notification No. 175/86 and Notification No. 1/93 because their intended use as original equipment was not known at the time of clearance. (ii) Whether the demand could be sustained for the extended period on the basis of suppression of facts.

Issue (i): Whether components of machinery cleared by the manufacturer without claiming exemption were outside the exemption under Notification No. 175/86 and Notification No. 1/93 because their intended use as original equipment was not known at the time of clearance.

Analysis: The exemption was subject to a proviso covering specified goods which are components or parts of machinery, equipment or appliances cleared for the original manufacturer, provided the Chapter X procedure is followed. The manufacturer of parts may not know at the time of clearance whether the goods will be used as original equipment or for other purposes. In such circumstances, if the buyer does not initiate the Chapter X procedure, the manufacturer is justified in clearing the goods without claiming the exemption under the proviso. Subsequent use of the goods as original equipment does not alter the legality of the original clearance.

Conclusion: The clearances were rightly made without claiming the exemption, and the demand on this ground was not sustainable.

Issue (ii): Whether the demand could be sustained for the extended period on the basis of suppression of facts.

Analysis: The classification list disclosed the nature of the goods and the relevant clearances, and the department was aware of the factual position from the materials filed. The record did not establish any suppression by the manufacturer. Letters from buyers showing use of the components in final products did not by themselves prove that the manufacturer had knowledge of original-equipment use so as to justify denial of exemption or invocation of the extended period.

Conclusion: The extended period could not be invoked and the demand was barred by limitation.

Final Conclusion: The demand was unsustainable both on merits and on limitation, and the appeal succeeded with the impugned order set aside.

Ratio Decidendi: Where the manufacturer of components does not know at clearance that the goods will be used as original equipment, and the buyer does not follow the prescribed Chapter X procedure, the manufacturer may clear the goods without claiming the exemption; absent proof of suppression, the extended limitation period cannot be invoked.

---